Demonetisation: A boon or bane for the Indian economy?

First, the sharp drop in the Reserve Bank of

Indias (RBI) dividend payout to the government
primarily on account of the cost of printing currency
and the cost of soaking up excess liquidity from the
financial system; then the publication of central
banks annual report for fiscal year 2016-17 (RBI
follows a July-June fiscal year) which put the
estimated value of the currency that returned to system
at Rs 15.28 trillion or close to 99% of the currency
notes demonetised in November-December 2016.

Prime Minister Narendra Modi on November 8, 2016,

announced that all currency notes of denominations of
Rs 1,000 and Rs 500 would be invalid from the midnight
of that day. In the 50 days between November 10 and
December 30, 2016, Rs 15.44 trillion worth of Rs 500
and Rs 1,000 currency notes were withdrawn to attack
black money, fake currency and terror funding.
These notes constitute 86.9% of the value of total
notes in circulation at that time. Right from Day One,
the move attracted sharp criticism from many quarters.
Particularly, after it had come to light that almost
99% of the currency notes are back into circulation,
many are questioning the efficacy of the move. What
benefit has the demonetisation reaped when 99% of the
currency in circulation has come back to the system?
This clearly shows, no black money was confiscated,
they are saying. Yes, that is true. It is also true
that the small industrial units, which redominantly
operate in cash economy, have suffered and some jobs
have been lost and economic growth is being affected.
But do all these mean that the demonetisation has been
a futile exercise? Should we regret this? As a common
man and someone who has been closely tracking the
people at the so-called bottom of the pyramid first by
virtue of heading a large microfinance institution and
now a bank which serves this segment.

We must remember the demonetisation is one of a

string of steps that the government has been taking t o
attack black money. First, it had given a three month
window for bringing back unaccounted money stashed in
offshore accounts, but the response was not good. The
next target was black money within India. The Income
Disclosure Scheme 2016 has been relatively successful.
It collected Rs 65,250 crore, seven times more than
what one such scheme in 1997 had mopped up. The
government also passed a law to curb benami
transactions and Indias Double Taxation Avoidance
Agreements with Mauritius and Cyprus have been amended.
We cannot see the demonetisation move in isolation
this is part of the larger design to unearth black
money. Yes, it has not confiscated hordes of black
money. However, the banks have reported lakhs of
suspicious transactions where people have deposited
large amount of cash with banks which their financial
background does not justify. In due course, the
investigative agencies will get into action and track
down these people.We also need to take consider the
rise in cashless transactions.
Many say this benefit is an afterthought. Be that
as it may but the fact remains we are seeing a rise in
the use of debit and credit cards, particularly in the
segment which probably never used cards before. Every
such transaction leaves a trail behind and makes sure
that more and more people will come into the tax net.
We cannot ignore the benefits of digitalisation of cash
transactions and a definite move towards a less-cash
economy.

The number of returns filed as on August 5, 2017

have registered a rise of 24.7% compared to a growth
rate of 9.9% in the previous year. The total number of
returns (electronic plus paper) filed during the entire
fiscal year 2016-17 was 5.43 crore which is 17.3% more
than the returns filed during fiscal year 2015-16. For
2016-17, 1.26 crore new taxpayers (return filers plus
non-filers making tax payments) were added to the tax
base (till June 30, 2017).

The effect of demonetisation is also clearly

visible in the 19% growth in direct tax collections.
Collection of advance tax under personal income tax
showed a growth of about 41.79% over the corresponding
period in 2016-2017; collection of self-assessment tax
under personal income tax showed a growth of 34.25%.
According to the income tax department, the number
of e-returns of individual taxpayers filed till August
5 increased to 2.79 crore from 2.22 crore filed during
the corresponding period of last year, registering an
increase of about 57 lakh returns, or 25.3%. Going
forward, tax compliance will rise further.

Demonetisation has also improved transmission in

the banking system and led to the greater
financialisation of savings. Look at the way the banks
have pared their loan rates in past nine months because
they are flush with money. Wont that bring down the
cost of investment when the borrowers decide to lift
the bank money? I am also confident that from now on,
people will shift their focus from real estate to
financial assets such as mutual funds, insurance, among
others, as an investment avenue.
Finally, we must take into account two other great
initiatives of the government and see the big picture.
They are Pradhan Mantri Jan-Dhan Yojana, a national
mission on financial inclusion, launched within months
of the new government assuming power. It has been
trying to expand the banking sectors reach. As on
August 30, it has opened 30.09 crore accounts and the
money kept in these accounts are Rs 65,800 crore. And,
we have seen the launch of goods and services tax, or
GST, in July, the biggest economic reform since 1991 to
created a nationwide market.
All these initiatives form a pattern. Lets not
pick and choose and run down one of them. The design is
for structural changes. We cannot avoid short-term
pains for long-term gains.

It came as a surprise to everybody after our PM

Narendra Modi declared on trashing the 500 and 1000
rupees notes. PMs move on banning the respective notes
certainly may be the ray of hope to sweep out
corruption and a boon to every tax-payer. The attempt
to wipe out black money and corruption might be rigid,
however was it really a well-planned move?
 Most of them had this question in mind as they were
unaware of the reason behind such a drastic change.
Usually skeptical to changes is typical among Indians.

However, let me point out few reasons which were the

positive part of this decision was-

1) To stop the funds that were transferred by

terrorists,

2) Put an end to the circulation of fake currency

notes,

3) Wiping off the corruption of black money

4) Bring up the indian economy for a better tomorrow

including real-estate and gold where most black money
were grounded

5) Digitalization being the forte

Digitalizing India to have a cashless policy where

every Indian would either use online transactions or
swipe their card for the smallest of uses. This will
help in maintaining harmony and discipline among people
and the crocodiles out there to fill the country with
filth would step back from corruption. Although the
Constitution has many loopholes, which in turn could
backfire this attempt, as we have other ruling parties
that may unite to stand against the good cause as it
involves the government. The government did not pay
heed to the fact that they may not be in power by the
next elections, still took a step towards a better
tomorrow.
 Aiming at combating corruption or black money,
short-term problems and chaos spread among the working
class; especially those that deal with cash on a daily
basis. During this change, most of the working class
people had to stand in queues to withdraw a basic
minimum amount of cash from banks or ATMs, where many
small businesses run on liquid cash. The effect on
urban consumers, small and large businesses will be
prominent as this move will seem to be crippling down
in the sort-term. The semi-urban and rural sections
will take more time than urban areas to cope up with
the change, however the shortage of smaller denominator
notes will create more chaos. People with stationery
shops, daily wagers, auto-drivers, small businesses
that involve services providers like electricians,
plumbers, upholsters, handyman, even online e-commerce
companies that do not have online payment facilities
had to capitulate to the situation. After a point,
other denominations which are less than 2000 and 500
notes will get impacted and there would be requirement
for smaller currencies in the next few weeks. The
incurred loss during these days cannot be mended or
attained by them.

Assuming the attempt to clear out corruption

wasnt a planned process, the brunt that the common
people have been facing since that night was not
justified either. The chaos alerted common man driven
towards a negative thought-process which led them to
fear lack of cash in hand, as this would affect them
while travelling, purchasing necessities and other
emergency requirements. The initial turmoil to any huge
change can be adjusted however, when common man being
effected for an unexplained period of time makes them
anxious and weary about the situation. Infact many
government hospitals and medicine stores refrained from
accepting 500 and 1000 rupees notes which was not as
per the declaration by PM. Most private entities and
organisation neither compromised nor came as a help to
common citizens during this crisis, as they were afraid
of being penalised by the government.

Standing behind long queues in the bank each day to

withdraw nominal amount which is insufficient however,
lately the weekly withdrawal was increased to soothe
the civilians from unrest for the time being. Although
this effect did not hamper the rich as most of their
transactions were online, nonetheless the working class
faced the brunt and are still going through the same.

The controversy of introducing Rs.2000 note coined

several doubts on the government as to what could the
strategy be? Moreover seemed like an unsolved mystery.
Although this demonetising step has the potential to
pin down the small rogues, scrape off the illegal
transactions in real estate, gold and other sectors
where circulation of unaccounted money was vigorous.
Mostly the daily wagers, cash related businesses and
services were under a huge loss and had succumbed to
the currency crunch. There wouldnt have been shortage
of cash in banks and ATMs (the new 2000 and 500 notes)
and people who belong to working class would not have
been the victims of the crisis if the idea to
demonetise would have been more planned. Plus, the
primary focus should be on recovering the safeguarded
money of people kept in the overseas.
A lot of corruption came into notice which can be
called as the demonetising effect. Various unaccounted
money in the form of real-estate and gold were
discovered from certain section of people. True though
that the act could be a start of a new economy for
India. The utmost that indian citizens can give away
during this crisis is patience as they work hard, pays
tax and compromises to anything that could be good for
the country. Hoping to see the world of digitalization
strike in India and making the people aware of benefits
of transacting digitally.

On November 8,2016 Prime Minister Narendra Modi

announced demonetisation of Rs500 and 1,000 notes. By
just one stroke, the country changed. Revenue of
municipal corporations of five major cosmopolitan towns
made quantum jump in the month of November 2016,
compared to revenue of 2015.
Hyederabad registered a jump of 2,500 per cent,
North Delhi Municipal Corporation revenue increased by
2,434 percent, Rajkot by 1,275 per cent, Surat by 2,314
per cent and South Delhi by 2,037 per cent. There was a
huge jump in the collection of dues for power, water,
telephone and land revenue. Take it that, it was due to
demonetisation of high value currency notes. This is
just the beginning. Wait for some time to see how the
country is making move towards a cashless society,
which is a big assault on black money.
Now, let us look at its political fallout. After
Bihar Chief Minister Nitish Kumar supporting Modi in
the fight against corruption, and black money, it is
now the turn of RJD chief Lalu Prasad, who too has come
out in support of demonetisation. With some ange,r Lalu
said, I am also in favour of notebandi , but my
objection is to its implementation. Lalu was compelled
to come out in support of demonetisation, because
opposing it, would have threatened the ruling alliance
in Bihar. The Congress now is isolated in Bihar on this
issue.
Chandrababu Naidu of Andhra Pradesh, and Chandra
Shekhar Rao of Telangana, both Chief Ministers of their
respective States, have supported the Government
decision. Naveen Patnaik, Chief Minister of Odisha, has
come out in favour of the move. In Kerala, the CPI(M)
Government is opposed to the move, but not as
aggressively as its central leadership of the party.
The outcome of 12 by-elections held last month,
after demonetisation, is also a signal of peoples
support to the move. The Congress had to contend with a
win of only one seat. The BJP won five seats, while
regional parties got six seats taken together, the
Assembly , and Lok Sabha constituencies. This decision
of Prime Minister Modi has placed the nation on the
fast track of cashless transactions. After the
demonetisation, according to one estimate, online
transactions have risen by 300 per cent.
No doubt, the move has resulted in long queues of
people, that can be seen outside ATMs and banks. There
is anxiety, and some anguish on the face of people, who
have to wait for long hours to get cash, but there is
also a faint smile on their face indicating that common
man, and majority of the people want era of corruption,
and generation of black money to end.
Even Mayawati is not mustering enough courage to
oppose the move. She and many other opposition leaders
find fault with the lack of preparedness, that is
causing hardships to people in getting cash from banks
and ATMs. But, how could the Government make advance
preparation for implementing the decision? It would
have defeated the purpose of the demonetisation.By each
passing day, the queues are getting shorter. Beside the
point, the process of digitisation in cash transaction
is on fast track. The online, and cashless,
transactions would increase in three months that the
country would have achieved in three years, had this
decision not been taken.
The total number of debit cards in November 2015
was Rs62.36 crore. This figure has now gone up to Rs90
crore. Even Nandan Nilekani, the man behind Aadhar card
identification, has openly come out in support of the
Government move towards cashless transactions.We have
already created a base for this types of
transformation, by having large base of smart, and
android mobile phones sets with the people. There is
also feature phone users for online payment by using
the unified payment interface application.
Those who dont have mobile phones, can use their
Aadhar cards in micro-ATMs for making payments. Milk
and vegetable vendors, and even small grocers, have
started accepting online payments.The day is not far
off, when our country would go cashless transaction,
and paperless work. What is needed is to implement this
policy. A determined leadership with firm conviction
which our Prime Minister has is taking the nation
forward.
By the year 2024-2025, all citizens of the country
would have smart phones. Those opposed to cashless
transactions say that countries like Sweden, Canada and
Britain have a small population base with cent per cent
literacy, hence cashless transactions are possible.
Some people are hell-bent upon criticising, and
opposing the Government decision on social media. But
it is not going to impact the nation.